£690bn Of Tax Abuses Kept From Public By Global Tax Body

By Mark Bou Mansour – Long read 12 minutes: Multinational corporations who submitted records to governments evidencing their use of tax havens to underpay a total of $868 billion in corporate tax have gone without public accountability for years, due to a global rule set by the OECD that prohibits governments from publicly disclosing the records. In the absence of repercussions, multinational corporations have scaled up their tax abuse activity since they first began submitting the records to governments, according to the Tax Justice Network’s analysis of anonymised versions of the records.¹

The findings come just ahead of a UN vote expected later this month that could see the OECD’s 60-year reign over global tax rules supplanted by the UN. 60% of countries at the UN are currently in favour of establishing a legally binding UN tax convention that would require global tax rules to be decided at a globally representative and transparent forum at the UN instead of the OECD, according to the Tax Justice Policy Tracker launched today by the Tax Justice Network. But a minority of rich countries – most of which, including the US, UK and most EU countries, are OECD member countries – have closed ranks in recent weeks in an attempt to block the majority of the global population from bringing global tax rules to the UN.²

Campaigners around the world have harshly criticised the “blocker” countries for seeking to keep global tax rules “behind closed doors” at the OECD to the cost of the global population and their own citizens. The OECD, a small club of rich countries, some of which rank in the highest positions on the Corporate Tax Haven Index³ and Financial Secrecy Index⁴, has been setting global tax rules for the rest of the world for over sixty years and has come under widespread criticism in recent years for its failure neither to clamp down on losses to tax havens nor to meaningfully include the rest of the world in its decision-making.⁵

“It’s unconscionable that these blocker countries would rather go against the interests of their own citizens and have us all keep losing billions to tax havens every year instead of bringing global tax rules into the daylight of democracy at the UN,” said Amelia Evans, the Tax Justice Network’s advocacy consultant in New York. (full comment below)

 

Countries blocking UN transparency lose the most to opaque OECD tax rules

The Tax Justice Network’s analysis of anonymised versions of the records collected by governments from multinational corporations shows that blocker countries are the world’s biggest losers to global tax abuse by multinational corporations, and consequently have the most to financially gain from moving global tax rules to the UN. Countries opposing global tax reform at the UN collectively lost £460/$581 billion to multinational corporate tax abuse, according to the records.

The records collected from multinational corporations, known as country-by-country reporting, were originally intended to be made public as a transparency measure to deter multinational corporations from abusing tax and to hold accountable does who do. The Tax Justice Network conservatively estimates that at least 1 out of every 4 tax dollars lost to corporate tax havens could be prevented by simply making the records public.

The OECD, which had long resisted the transparency measure but was mandated to adopt it by the G20 in 2013, stipulated that governments must anonymise the records they collect from multinational corporations before passing the data along to the OECD, which would then share the anonymised and aggregated data with the public.⁶

New analysis published last month by the Tax Justice Network confirms warnings from tax experts at the time that the OECD’s rule to hide the names of multinational corporations from the public would make the measure ineffective.

The first set of records, collected in 2016 but not made public by the OECD in an anonymised format until 2020, revealed multinational corporations to have shifted over a trillion dollars into tax havens and underpaid $245 billion in corporate tax as a result. The latest set of records, collected in 2018 and published in anonymous format this year, show multinational corporations have increased the amount of tax they underpaid by shifting profit into tax havens to $311 billion. Between 2016 and 2018, multinational corporations paid a total of $868 billion less in corporate tax than they should have.

 

To date, no multinational corporation has been publicly identified or held accountable

 

To date, no multinational corporation has been publicly identified or held accountable over their country-by-country reporting, despite the reporting effectively serving as a self-confession by multinational corporations to governments of abusing tax.

The biggest loser to multinational corporations’ tax abuse was the US, which lost $266 billion between 2016 and 2018. The biggest enabler of other countries’ tax losses was the UK, which, through its network of British tax havens like Cayman Islands and Jersey, cost other countries $255 billion in public money between 2016 and 2018. The biggest regional loser was the EU, whose members lost $220 billion between 2016 and 2018.

The Tax Justice Network has published a list of all countries’ losses to multinational corporate tax abuse for 2016 to 2018 ahead of the vote.⁷

While higher-income countries like the US and EU lost the biggest amounts of public money, lower-income countries, which have historically had little to no say on global tax rules, were hit harder since the smaller amounts of public money they lost constituted bigger shares of the public money they collect overall. Higher-income countries’ corporate tax losses from 2016 to 2018 were equivalent to 5 per cent of their health budgets at the time, while lower-income countries’ losses in the same period were equivalent to nearly half (48 per cent) of their health budgets.

Sergio Chaparro Hernandez, International Policy and Advocacy Lead at the Tax Justice Network, said:

“The default at the OECD has been to keep as much as possible out of the public eye. From the names of corporations confessing directly to our governments about abusing tax, to the OECD’s rule-making process, it’s all kept behind closed doors. This opacity costs taxpayers everywhere billions every year.

“It all boils down to who gets to have a say on the global tax rules that impact all of us. The minority of countries trying to block a UN tax convention want to keep this limited to a handful of rich countries, tax havens and corporate lobbyists, beyond the reach of public accountability. The rest of the world want us all to have a say through democratic, transparent process at the UN, in the same way we’ve been deciding all other economic and financial global policies at the UN for decades.”

 

Last-minute OECD intervention stopped the unmasking of corporate tax abusers this summer

The world came inches from lifting the anonymity on multinational corporations’ country-by-country reporting records and clawing back some of their tax losses to tax havens when the Australian government nearly legislated its own public, non-anonymised version of country-by-country reporting this summer. A last-minute intervention by the OECD, along with a dog-piling of pressure from corporate lobbyists, stopped the legislation from coming to pass.⁸

1 in 5 multinational corporations around the world would have been required to make their country-by-country reporting public if the Australian law had been enacted, according to the Tax Justice Network’s analysis of companies operating in the country. This would have included many of the world’s biggest multinational corporations: Amazon, Apple, BP, British American Tobacco, Chevron, Coca-Cola, ExxonMobil, Ford, General Electrics, HP, Hyundai, JPMorgan, Johnson & Johnson, Lockheed Martin, McDonalds, Mastercard, Mercedes-Benz, Microsoft, Nestle, Nike, PayPal, Pepsi, Pfizer, Philip Morris International, Starbucks, Tesla, Unilever, Verizon, Volkswagen and Walt Disney Co.

The non-anonymised records would have revealed any corporate tax abuse activities the multinational corporations are engaging in around the world, not just in Australia. As a result, the Australian legislation would have helped governments around the world curb their corporate tax losses to tax havens.

Suggestions of OECD interference were first reported by the Australian-based CICTAR and the Tax Justice Network immediately after the Australian legislation was unexpectedly postponed. The two organisations were initially criticised for suggesting the OECD would intervene in such a matter.

However, an investigation by the FT confirmed shortly after that heavy lobbying by the OECD led to the postponement of the legislation.⁹ “There was heavy, heavy opposition from the OECD to the bill, and that was one of the critical factors behind the decision,” an FT source with knowledge of the situation said. A statement shortly followed from the OECD confirming the FT’s reporting of its lobbying but rejected the characterisation of this interference as “pressuring” the Australian government.¹⁰

In response, Tax Justice Network Chief Executive Alex Cobham said at the time:¹¹

“What little credibility the OECD had is now in tatters. The OECD makes promises about ending global tax abuse, but was evidently doing everything it could behind closed doors to protect tax abusers.”

“The Financial Times’ reporting shows that the OECD has put itself firmly on the side of secrecy – on the side of tax abuse – against one of its members. That’s an extraordinary state of affairs. And it couldn’t send a clearer signal to countries wondering whether the OECD’s proposed tax rules will help them to curb tax abuse. They won’t, and countries should pursue their own alternatives, while preparing for negotiations to establish a proper tax body at the United Nations instead.”

 

60% of countries support a UN tax convention

The majority of the world’s countries are in favour of establishing a legally binding UN tax convention, the Tax Justice Network’s newly launched Tax Justice Policy Tracker reports.¹² Tax experts argue a legally binding UN tax convention is urgently needed to prevent countries from losing nearly US$5 trillion to tax havens over the next 10 years – the equivalent of losing a year of worldwide spending on public health services.¹³

The Tax Justice Policy Tracker, which monitors in real-time governments’ progress on policies designed to end rampant global tax abuse, finds that countries in support of a UN tax convention overwhelmingly outnumber those opposed to it by 2 to 1. Sixty per cent of countries (117 countries) have publicly expressed support for a UN tax convention, according to the tracker; 29 per cent (56 countries) have publicly expressed opposition to it; and 11 per cent (21 countries) have not declared a public position.

Countries in support of a UN tax convention represent 81 per cent of the global population, whereas those opposing a UN tax convention represent 16 per cent. Countries that have not declared a public position represent 2 per cent.

Countries’ positions on the tracker are informed by their statements, actions and votes at the UN, as well as on any public statements on a UN tax convention made by their government officials in recent years.¹⁴

Of the 117 countries in support of a UN tax convention, 63 of these countries are identified by the tracker as “Leaders” for their active work to drive forward the establishment of a convention; 45 countries as “Supporters” for their consistent support of this work; and 9 countries as “Partial supporters” for expressing support but not consistently acting to support the work.

The greatest level of support comes from African countries, who as part of the Africa Group at the UN brought forward a historic resolution at the UN last year to begin the process of exploring a new global tax leadership role for the UN, opening the door to this year’s vote on a UN tax convention. The most frequent position among Asian countries identified by the Tax Justice Policy Tracker is “Supporter”. This is also the case among Latin American countries.

The greatest level of opposition comes from Europe and North America. Of the 56 countries that have expressed their opposition to a UN tax convention, 13 of these countries are identified by the tracker as “Opposers” for expressing opposition to a UN tax convention but not actively taking any steps to block it. 43 are identified as “Blockers” for consistently taking steps to block the realisation of a UN tax convention. This includes voting in favour of a failed US amendment at the UN General Assembly last year that sought to water down the process that has led to this month’s UN vote.¹⁵

The US and almost all EU countries and member countries of the OECD are identified as “Blockers” by the tracker, despite the countries being the biggest losers to tax havens. Polls in the US and several EU countries show there is overwhelming local public support for governments to clamp down on losses to tax havens.¹⁶

Establishing a UN tax convention would completely change how global rules on tax are decided by requiring global tax rules to be negotiated and decided in a transparent and globally representative forum at the UN. Tax experts argue that UN’s democratic processes, public transparency and rights-based principles can allow a majority of countries to push through long-awaited tax reforms that have been blocked for years at the OECD where tax havens and lobbyists have oversized influence.

However, those with knowledge of negotiations underway at the UN ahead of this month’s vote have told the Tax Justice Network that a minority of blocker countries are closing ranks and attempting to stop the vote on establishing a UN tax convention from coming to pass. In particular, the blockers have signalled that their red line is that the countries of the world cannot begin a process that includes the possibility of drafting any legally binding instrument – even though every country would retain full sovereign power over whether then to sign and ratify such an instrument.

Observers have drawn an obvious comparison with the behaviour of the OECD. The initial OECD Base Erosion and Profit Shifting (BEPS) Action Plan (2013-2015) was heavily criticised, not only for failing to address the scale of tax abuse but also for excluding the effective participation of non-OECD members. Non-members were, however, given the opportunity to join the newly established OECD ‘Inclusive Framework’ thereafter – on the explicit condition that they pass into their national legislation, every single element of the BEPS Action Plan over which they had no say. For some of the same OECD members that made this demand on the BEPS Action Plan, to now reject in advance the possibility of an inclusively negotiated instrument which they would still be at liberty not to sign, has inevitably led to suggestions of rank hypocrisy.

The UN General Assembly is meant to be voting this month on a draft resolution tabled in October by Nigeria on behalf of the Africa Group, which called for the establishment of a legally binding UN tax convention – which is the central option of three presented by the UN Secretary-General in a report this summer on solutions to rampant global tax abuse.¹⁷  The draft resolution seeks to establish an intergovernmental committee tasked with the job of drafting the UN tax convention by June 2025, and sets out the process that will be used to negotiate the intricacies of a UN tax convention. The draft resolution specifies that any possible UN tax convention ought to consider the impact of international tax rules on inequality, gender and the environment.¹⁸

Negotiations currently underway on the final text of the resolution ahead of the vote were understood to revolve around block countries preference to keep all of the UN General Secretary’s three options on the table, rather than committing to just one option.

But blocker countries are reportedly now refusing to keep any of the options on the table and instead want to delay any UN vote on options for global tax reform by starting a working group with a vague remit only and no power to move negotiations forward, preventing any progress until at least 2026. But there is powerful momentum to maintain the global consensus on last year’s resolution, and pressure on blocker countries to not stand against that demand continues to grow.

Over 200 NGOs and trade unions from around the world, including ActionAid, Amnesty International, Greenpeace, Oxfam and Save the Children, published a joint letter last week in support of the draft resolution.¹⁹

Amelia Evans, the Tax Justice Network’s advocacy consultant in New York, said:

“Almost $5 trillion in public money will be lost to tax havens over the next 10 years if countries stick with the undemocratic tax rules set by the OECD. These unfit rules have been decided behind closed doors and out of the public eye by a handful of rich countries, tax havens and corporate lobbyists.

“We’re delighted to see the majority of governments supporting this rare opportunity to undo decades of failed global tax policy and finally put people before tax havens by voting in favour of a UN tax convention this month. A UN tax convention would finally require global tax rules to be decided transparently and democratically at the UN, where governments can be held accountable by their people back home.

“Some countries, mostly the richest members of the OECD, are pushing back against a UN tax convention. It’s unconscionable that these governments are choosing to go against the interests of their own citizens and to keep losing billions to tax havens every year over bringing global tax rules into the daylight of democracy at the UN.”

 

Blocker countries forcing OECD’s failed reforms on rest of the world

Those knowledgeable of the OECD’s lobbying against the UN process describe senior OECD leaders portraying the current situation as “existential”.

The OECD has come under fire from a range of global bodies, regional blocs, prominent economists and NGOs for its inability to deliver effective measures to curb losses to tax havens and for its failure to meaningfully include the majority of the world in its decision-making. This includes a report by the UN General Secretary which levies unusually blunt criticism against the body, a resolution adopted by the EU Parliament earlier this year, several statements by countries at the UN General Assembly and a public letter signed this month by over 200 NGOs from around the world.²⁰

Despite the widespread criticism of the OECD and the global consensus to move beyond it, the minority of blocker countries are insisting that OECD’s current “two-pillar” proposal for tax reform will deliver for all countries. Evidence from several bodies, including the IMF and EU Tax Observatory, have demonstrated the OECD’s long-overdue “two pillars” proposal will make little to no reductions in losses to tax havens – and in some cases, may worsen the situation for lower-income countries.²¹

The OECD officially began a process in 2013, under instruction from the G20, to reform its own rules with the sole goal of curbing corporate tax losses to tax havens. Research²² has shown that, 10 years on, little to no progress has been made, further confirmed by today’s analysis of the OECD’s own anonymised country-by-country reporting data which indicates that corporate tax losses have gone up. Tax experts argue that the lack of transparency, inclusivity and democratic process at the OECD, as well as entrenched conflicts of interests among its tax haven members, has made the OECD incapable of curbing corporate tax losses to tax havens. 78 per cent of all tax losses countries suffer to tax havens are facilitated by OECD countries and their dependencies.²³

It is widely understood that the first of the OECD’s two pillars for tax reform will not be enacted once finalised due to a stipulation that prevents all countries from enacting the proposal if the US does not ratify it – something which US Congress had made clear it will not do.²⁴ The US ranked at the top of the Financial Secrecy Index in 2022, a ranking of countries most complicit in helping individuals hide their finances from the rule of law.²⁵ The US’s axing of pillar 1 has led the Tax Justice Network to label the pillar a “zombie proposal – dead in the water but kept animated by a superficial process at the OECD”.

The second pillar – the global minimum tax rate – has been criticised by tax experts for being watered down by the OECD’s tax haven members from its original ambition as a “speed limit” for tax havens into a “reward programme” for tax havens. The proposal started at a global minimum tax rate of 21% but was whittled down to 15%, far below most countries’ corporate tax rates, and then reconfigured so that even the small amount of tax that would be recovered under the global rate would go to the biggest tax havens instead of the countries where that tax should have been collected.²⁶

Sergio Chaparro Hernandez, International Policy and Advocacy Lead at the Tax Justice Network, who has led the development of the Tax Justice Policy Tracker, said:

“The OECD does not have the processes the UN does to properly negotiate and find global agreement on international policy. The OECD has been unable, after 10 years of trying, to reform its own tax rules to curb corporate tax losses to tax havens simply because its tax haven members have too much power in its decision making.

“The UN, on the other hand, was designed exactly for this sort of thing. The UN has the processes and expertise to build agreement, to do so in a democratic and transparent way, and to put people’s rights and wellbeing at the heart of global policy. We do this for global rules on trade, banking and all manner of things. Global tax policy has been a disastrous exception to the rule. It’s no surprise the majority of countries are in favour of ending this exception on tax havens.”

“It’s beyond hypocritical of blocker countries that have been undemocratically deciding global tax rules at the OECD for the past 60 years, and arm-twisting the rest of the world into accepting them, to now be blocking 80 per cent of the global population from being able to democratically agree their own rules at the UN.”

 

Mark Bou Mansour writes for the Tax Justice Network.

See links to this article HERE

 

 

 

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